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HMRC internal manual

VAT Civil Penalties

Misdeclaration penalty: Discretion, reasonable excuse, and mitigation: Exclusions and general considerations for reasonable excuse

Please note: VAT Misdeclaration Penalty has been replaced by the Schedule 24 inaccuracy penalty for all accounting periods where the return period commences on or after 01/04/2008 and the due date is on or after 01/04/2009. Misdeclaration penalty will still apply where the due date is before 01/04/2009.

Please see the Compliance Handbook CH80000 Penalties for Inaccuracies for further details.


There is no legal definition of a reasonable excuse, and what may be acceptable for one trader may not be for another. Section 71 VAT Act 1994 stipulates that certain conduct cannot be a reasonable excuse.

Lack of funds

Lack of funds to pay any VAT due cannot be a reasonable excuse.

Reliance on another person

Any delay and/or inaccuracy by any person relied on to perform any task also cannot be a reasonable excuse.

General considerations

There are some themes that are common to all appeals, and this section provides guidance on some of those themes.

Whilst a trader may offer several excuses which individually are considered to be unacceptable, when they are considered as a whole they may add up to a reasonable excuse.

Any challenge to a Misdeclaration Penalty including requests for reasonable excuse or mitigation should be dealt with locally. The decision whether to accept or reject any claim that a reasonable excuse or mitigation applies, should be made by the officer conducting the review.

There are no set rules as to the grade or location of the reviewing officer. However it is recommended that the reviewing officer should have had no connection with the original assessment and an SO grade should provide support in particularly complex cases. Cases should only be referred to Tax Administration, Litigation and Advice (TALA), see VCP10140, where you wish to take action not covered by this guidance.

You should always try to determine whether the excuse put forward by the trader shows that they have acted as a “reasonably conscientious businessman”. This concept was first defined by the past President of the VAT Tribunal, His Honour Judge Medd OBE QC in the appeals of Appropriate Technology (LON/90/1350X) and The Clean Car Company (LON/90/1381X).

It is HMRC policy that unless a trader can demonstrate that he was aware of the need to comply with his VAT responsibilities, then no reasonable excuse exists. It should be noted that “reasonableness” refers to the conduct of the trader not to the error made.

Tribunal appeals only relate to the individual circumstances of that particular case; they do not normally create a precedent. While considering the grounds put forward for reasonable excuse you will begin to form a judgement about the possibility of mitigation. A reasonable excuse is a reasonable excuse but a degree of reasonableness may be grounds for mitigation.